By Barkley Rosser, Professor of Economics, James Madison University. Originally published at Econospeak

There are at least two definitions of a speculative bubble. The first, and most widely accepted, is that it involves a price of an asset that rises substantially above its fundamental and then falls back towards that fundamental. The other, not necessarily all that clearly distinguishable from the former, involves an asset price that rises due to people buying due to an expectation that they will get a capital gain from its expected future price rise, with this then happening due to a self-fulfilling prophecy, with eventually the price falling sharply, with this not necessarily involving a fall towards a fundamental because the asset may have no fundamental at all.

I note before proceeding futher that there is an enormous debate and literature on identifying fundamentals at all, even when they might theoretically exist. There is a serious body of opinion dating from Flood and Garber a quarter of a century ago that one cannot identify them econometrically (“Tulipmania”). This has been shown to be false by me and many others in various papers, including particularly on closed-end funds where the net asset value of the fund minus taxes and fees is a fundamental, and when those soar to twice the value of the underlying net asset value, well, we are looking at a bubble. The lit is there and decisive. I asked Garber to comment on a paper presented a long time ago at a conference on this point, but the chicken shit did not show up to admit that he was just plain wrong. He had no legitimate excuse for his absence.

Of course Bob Shiller has made pretty reliable estimates regarding housing prices based on price to rent and price to income ratios. His studies of these by 2005 were pretty decisive to anybody who was remotely paying attention (including at the Fed, Janet Yellen, the only one there to take this seriously at the time), that the US housing market was in a serious bubble that was going to crash big time. The matter of forecasting how bad it would get with the Great Recession became a matter of who had figured out how deeply the financing for all that had gotten involved in world financial markets at a fundamental level, and very few did figure that out.

But then there are assets that have no fundamental at all, even theoretically, quite aside from all the horrendous econometric identification problems pointed out by such serious people as Jim Hamilton, for whom I have the deepest respect. The question for cryptocurrencies in general is whether they have a fundamental, and it may well bey that they do not. If that is the case, then only the second definition of a speculative bubble may be relevant, and that is much harder to determine than the former, already admittedly a difficult matter.

How might bitcoin have a fundamental? One reason might be for its use as a medium of exchange. However, while it is certainly being used as that, for regular commodity transactions as of now it remains as a sometimes difficult alternative to cash dollars. As near as I know there are no regular commodity transactions in the real economy that require it. So, it may have no fundamental, and from what I have heard, this is widely accepted among the more sophisticated bitcoin traders. This would make it like art, such as the recent sale for $450 million of the possibly faked “Salvator Mundi” supposedly by Leonardo da Vinci. And, of course, there is good old gold that has a long had a value as a store of wealth about an order of magnitude above its likely strictly commercial fundamental value.

However, it may be that bitcoin has a fundamental value above zero, if wildly fluctuating and hard to estimate, far beyond the econometric difficulties identified by people such as Hamilton, much less Flood and Garber. It is that to buy most of the other cryptocurrencies one must use bitcoins to do so. Oh, this is really a gas. The fundamental for one asset is based on its ability to purchase even more lacking in fundamentals and totally speculative assets one must own it. Wow.

Thus we have that any real fundamental for bitcoin is a derived demand for any among the vast universe of other cryptocurrencies, and we should keep in mind that bitcoin itself is horrendously inefficient compared to others because of its accelererating and already very large “mining” costs. As near as I can tell there are only two other cryptocurrencies that have any relation to the real world out of the multitude of crytpos. They are etherium and ripple. The first has been a matter of much speculation itself, given its potential for writing contracts, giving it a serious possibility of much longer use and actual usefulness in the real world. This may yet occur, although for its future it would probaby be better for it if it could be bought directly with cash/dollars from the real world rather than having to use the horribly socially inefficient bitcoin, a bad example of first mover advantage, or perhaps the ultimate proof that the first mover should be sent to last.

Which gets us to the quiet and most obscure member of the crypto world, ripple. This cryptocurrency, which is the hardest to buy of them all, is probably the one with the most serious actual real world use, and thus possibly providing a real foundation for bitcoin to have a fundamental, although I confess at this point that I am not certain to what degree purchasing it does rely on using bitcoins. I know that as of fairly recently one had to use bitcoins to buy etherium, but I am not sure about ripple, which moves with bitcoin, but probably more weakly than any other of all the cryptocurrencies.

The source of its value is that has been adopted by a significant number of banks for their interbank transactions. This now appears to be firmly established, not to go away whatever happens to bitcoin or any of the other cryptocurrencies. Indeed, the underlying idea of blockchains is clearly a brilliant and useful forward movement in managing financial and economic transactions, assuming that is managed in a reasonable and efficient manner, without me remotely dealing with issues of transparency or legality. But it seems that at least some banks have decided to use ripple, which I understand uses a more efficient mining technology.

So, there may well be a fundamental for bitcoin, despite what I understand to be the current consensus among smartass bitcoin traders. But, of course, that fundie is probably way below the current price, as if that matters at all.

Post navigation

57 comments

Newbie here Yves, but, the ledger needs to be regularly updated to reflect new coins and transfers between wallets. This requires energy and, as long as the cost of energy is cheaper than the value of a mined coin, bitcoin will continue to be a sought after asset.

not being helped with Wall St coming in to get their share of the pie – suggests it has some legs yet, before it is chopped down.

Spend it, save it or try your hand at day trading. Being long term deflationary, saving is encouraged. On the other hand, speculation has almost certainly driven the price up. If you expect a correction, you might be tempted to spend it or trade it.

Even assets such as stocks — whose fundamental value can be estimated via multiples of sales, earnings, dividends and book value — periodically experience gross overshoots to excessively low or high values, owing to self-reinforcing swings in popular mood. Notionally, about half the weight in setting their price is attributable to mass psychology.

When it comes to zero-yield assets such as gold and cryptocurrencies (“money,” if you will) where valuation multiples don’t apply, popular psychology is probably 80 percent of the price-setting process.

Thanks to a vast, reckless global expansion of central bank credit, traditional assets such as stocks, bonds and property have become exorbitantly expensive. In this already overheated hothouse, Bitcoin and its brethren are like internet start-ups in the mid-1990s: harbingers of a new, transformative technology.

As in the canal and railroad bubbles of the 19th century, or the mass consumer goods bubble of the 1920s, dozens of early cryptocurrencies will eventually shake out to a dominant few.

Until then, though, cryptocurrencies — as the ultimate, inscrutable objects of desire — serve as a convenient index of the mania. Bitcoin $11K earlier this morning tells us that Bubble III (Peace Be Upon It) lives on.

That dreadful day when Bitcoin plunges, rebounds, but fails to reach a new high will herald the fall of night for seven billion souls.

Bitcoin has an obvious store of value problem. But Jim Haygood is right. Bitcoin’s ascent is largely due to the inability of global central bankers to keep their hands off the printing presses. I think bitcoin is doomed to collapse in value. But if a future crypto-currency solves the nagging store of value problem, then crypto-currencies might eventually become viable. I wrote an article about this on my website: Blockchain 3.0 and the Problem with Bitcoin.

Fixing the store of value issue in the future won’t save bitcoin or most of the current crop of crypto-currencies though.

I think the use of both ‘fundamental value’ and ‘mania’ to describe a ‘bubble’ are simply a way of attaching notions of irrationality to a phenomenon that we can’t really understand and don’t want to (or can’t) try because we need to assume ‘stability’ most of the time. For example – tulips in NL in the winter of 1636-1637. Seems completely oddball in the absence of any further information. But when you add in ‘a recently commoditized/monetized thing which is also highly portable’ – and a plague outbreak in NL from 1635-1637, then you begin to see some possible rational behavior here.

When people are dying, demand for daily ‘stuff’ drops fast and can drop much faster than supply – esp in local areas that are being hit hard. IOW – prices for stuff become extremely localized and ‘price indexes’ that normal currencies are based on become irrelevant. Lets say you are in one of these towns when plague rolls in and you want to get out ASAP. You can load up a cart with livestock/food/furniture and possibly die before you get out of town. Or you can sell all of that to a neighbor who is staying in exchange for the tulip bulbs they grow (and tulips were a major export crop from NL at the time) – and get out of village fast. Or in cities, you can sell all that stuff in exchange for a ‘futures delivery’ of tulips – and get out of city fast.

It’s entirely reasonable to believe that for a time in NL – tulip bulbs were very rationally and fundamentally comparable to gold/diamonds – not to flowers like daffodils or dandelions. Even three years later? Well who cares – you’re alive aren’t you? 60 years later – you’re dead and history is now written by people who were never in your place – so will assume you were just an irrational twit (and they are thus smarter than you which is merely natural confirmation bias).

I have no real idea why bitcoin is priced where it is. Maybe it IS being perceived as having some monopoly power over entry into broader cryptos in a world where cash is crap and banks are crap and the entire financial sector and govts are screwing you and there is no reason to believe any of that is going to change. That is not necessarily irrational. It’s a get out of town crypto – where ripple seems more of a double-down crypto.

Until the housing bubble, a good many financial bubbles have been some bauble that doesn’t matter, not an essential as is shelter.

This fits perfectly into tulip territory, and the thing I find funniest about bitcoin, is the need in every article written about it to show a metallic looking coin being representative of it, as otherwise there is no there, there.

Many exchanges now allow you to buy many coins directly in local currency. In the US, Coinbase allows you to buy Bitcoin, Ethereum, and Litecoin direct from USD. Bittrex allows you to buy 190 coins direct from USD. So Bitcoin is losing any value from being a cryptocurrency intermediary. If anything, Ethereum is becoming that intermediary. All of the ICOs I’ve read about require you to buy in with Ethereum.

Bitcoin will never be a currency as the transaction times are too slow. 10 minutes to confirm a transaction will never work at a gas station or coffee shop. However, I believe it will become Digital Gold and serve the same function. Like Bitcoin, there are very few places that I can buy actual stuff with gold. It has to be converted into local currency first.

From a human rights angle, I am excited about Bitcoin when it comes to things like refugees. Recall the stories of people sewing gold coins or currency into quilts and into their clothing to try and take their wealth with them in times of strife. These people always get rolled by bandits, smugglers, or local military/militia and their wealth stolen. With bitcoin, their wealth is simply held in the cloud. They look like any other poor refugee while traveling. When they arrive in a safe place, they open a bank account in that currency, and exchange the bitcoin for local currency. This eases the burden on the host countries as it allows refugees to bring wealth with them to spend into the local economies.

Why has gold continued to be valuable even though you can’t really buy anything with it? Because people believe that it’s a store of value. Bitcoin could serve the same function. Unlike Gold, Bitcoin has not been around very long, nor does it have government backing (gold has had this through most of history) to bring stability to its value. This means it will continue to be volatile for awhile but hopefully it will settle down near gold’s volatility.

Of course this doesn’t help answer the question of what is Bitcoin’s fundamental value. Like gold it would still swing a lot. Gold was like $250/oz in the 80’s, $1,800/oz in 2008, and now around $1,200/oz so Bitcoin, like gold, could have wild swings.

We could also see attempts to corner the market and manipulate the price as we have seen in precious metals. People will take advantage of new and thin markets to push the price around. I think with the new futures contracts Bitcoin will become even more volatile in the short term.

> Bitcoin will never be a currency as the transaction times are too slow. 10 minutes to confirm a transaction will never work at a gas station or coffee shop. However, I believe it will become Digital Gold and serve the same function.

Bitcoin certainly seems to be heading in the ‘digital gold’ direction, but keep in mind that people are also building protocols on top of Bitcoin, with the aim of enabling vastly higher throughput and very fast, very low cost transactions. See ‘Lightning Network’, for example. I still think we will ultimately see people (and machines) using bitcoin as a currency on a daily basis.

Yes. It’s a cryptobubble. A derivative of nothing. As inscrutable as it is absurd. And for good reason. When we accuse banks of manufacturing their own commodity out of thin air every time they make a loan it isn’t nearly as absurd as using Bitcoin as a store of value because with a bank loan there is a contract to honor the debt – a contract is not a bubble; there is really some there there. Even tho’ that whole process can become very corrupt in a greedy, profit-driven world . And money itself is a contract. If it’s a bitcoin bubble there is nothing there but spent electrons and it will be a very pointless, frenzy of a bubble which will never control its own value. And Bitcoin becomes even more absurd when you realize that even the Fed can’t define inflation. Ha! So what is all this manufactured scarcity (cryptomania) going to do about that little existential crisis?

There are at least two “philosophies” or “psychologies” that interest me in Bitcoin. It seems like the same split as in organized religion. You have the true believers in the pews, the laymen. Then there are the powerful cynics, the clergy, who run the show from the altar.

I think the Bitcoin true believers hold the evil of central bankers and deflation to be reasons to invest and “HODL.” I think the cynics in charge of course know all that but on top of it are there to fleece the laymen.

The clergy, the people who own the largest blocs, are very bright. They incent or support people like Andreas Antonopolous to evangelize and convert the non-believing masses into regular churchgoers.

The big holders are likely working overtime now, and have been, to figure out an exit strategy. This means the laymen will be left holding the bag. Are they selling their coins regularly? Yes. Will there be a point when these people decide to really make a killing and liquidate? Yes. Are they working out a strategy utilizing the derivatives markets opening shortly to achieve this fleecing? Yes.

I think this all means the regular folk are in for a rough ride. Volatility will lead to ecstasy and agony for those in the pews and profit for those anointed ones. What can we, NC readers, do?

I kind of wouldn’t quite say that the line is so clear cut between cynics and laymen. I think it’s rather, laymen are trying to be like “cynics” and fleece the lesser “cynic: – i.e. the game is as always “the greater fool game”. No different than the fools who spend all their income on a mortgage and property tax (know a few). So yes, there is definitely rationality involved, as these people know the risks but believe they will not be the ones who will lose everything. So they are rational but they simply may be overestimating their luck and skills. Very common. But here is a more nuanced anecdote:

I have a close friend who’s been a serial startup entrepreneur in the mobile brand marketing space. Never made it big but makes a decent living in a high cost city and pays salaries to several employees – so he is a competent person approaching 40 who likes risks but has also learned a few hard business lessons. His biggest issue has always been being able to raise capital without giving up equity. So recently we talked about his serious intention to do a token sale, which he is researching intensely. He thinks token sale (i.e. ICO) or airdrops (you can look it up) may be a great way for him to raise capital without relinquishing any equity in his company or incurring debt. His business model is selling ad campaigns driven by engaged users who get real rewards from his clients like coupons and merchandise. When I asked why not do crowdfunding in straight USD, he said, quote:
– [I know it is a bubble but] “I still believe there’s an opportunistic way of participating”
– “I think there are opportunities for smart, aggressive creatures on the way up”
– “I think the allure” [of token sale vs crowdfunding in USD] “for both financial and content contributors is the potential increase in actual cash value”
– “the hard part [..] is actually putting together an overall deal that is appealing to the early token buyers”
– “any idiot that says he’s going to do a token sale really better have a darn good reason why blockchain and tokens fit into his project. Otherwise that token sale will never gain steam”

So there you have it, the greater fool theory fueled by some pretty rational creatures who try to take advantage of it in meaningful albeit limited ways. What is also clear is that is that cryptocurrencies in themselves have little in the way of broad application (blockchain and holochain technology is another matter). So, to those who can – take advantage of the bubble but certainly don’t be a fool. Other than that, nothing new under the sun.

“I kind of wouldn’t quite say that the line is so clear cut between cynics and laymen.”

When it comes to differentiating laymen and clergy, I could not agree more with the Artist of Cleanliness (or is another translation better?) in terms of motive and brains. Both parties have lots of cynics and would like to sell to a greater fool.

One differentiator is that a person in the top 1% of Bitcoin owners can actually do something to the rest of us. I can do virtually nothing to him. If he wants to work with, say, a hedge fund like Paulson & Co. or an investment bank, say Goldman Sachs, they could cook up a deal to crash a security like Bitcoin and not even fill a conference room with the necessary decision makers. And of course, those two parties did that exact thing in the last decade with ABACUS in CDOs.

Forget it. The reason any US resident citizen wants US dollars is that they have to settle their federal taxes with US dollars, Uncle Sam will not accept chickens, gold, Yen, or Euro, or bitcoin. And very bad things happen to you if you don’t pay your taxes.

As Minsky pointed out, any Tom, Dick and Harry can create money, or currency. The hard part is to convince other people to accept your money.

I’ve heard little of the Goldman Sachs SETLcoin. It’s status as a currency patented & existing as a conflict of interest for Goldman Sachs because they sell more US T Bills & US debt papers than any other organization will depend on a destruction of the Bitcoin after which the Goldman Sachs SETLcoin will be rolled further out.

Could well be Crypto currency values will depend the competitive values attained of the aggregate as compared gold to silver.

Even when you understand the Bitcoin, you don’t. Truly it is a work of conceptual art. It was intended to be an underground currency. The hip with good income working in Coding use it.

Are the Refugees equipped to use it? Most of the stories I’ve read of refugees included real desirable cash in the form of Euros or Dollars.

In designing my own currency as the whole model nation is a work of art, I wanted my currency to be more understandable than the Bitcoin.
For the Transcendia Insurodollar based most on human capital & how it is represented as valuable via policy equity does require a Territory that demands all transactions in its currency.
In this regard my stuff mimics some of what made Kissinger & Nixon’s Petrodollar successful for the period when it was most solid.

I’d say that Bitcoin was here to stay. For one thing it can be “mined”, as was gold can be “mined”, and that is part of the genus of it.
For the equipped and adept there is a path to some wealth out of nothing.

The US Dollar went wrong when it took wars & operations to maintain the value of it as a Petrodollar. I’m thinking of Iraq & Libya. The nation states now with the most valued currencies are nuke equipped.
The Petrodollar is dying because its fundamentals have become war more than civilian enterprises & trade that requires the movement of currency from on hand to the other.

Civilization depends on excesses of energy. Whatever is most used to pay for energy capture, meaning primarily Solar, will arise as the dominant most useful currency.

One of the “izzitabubble?” evaluators I use to judge Bitcoin by is the “shoeshine boy” test. As in the old story about how a shoeshine boy was giving stock-picking advice to Joseph Kennedy in 1929, which led that corrupt rum-runner and futurePrez father to bail on the market before the crash.

I don’t get my runners polished, but I DO go to an exercise class once a week to strengthen my dicky right knee. The 20-something physiotherapist who runs it is a Bitcoin boffin. True believer. My stand-in for the shoeshine boy. He’s a nice bloke, sincere, never invested in shares, not a whole lot of financial experience. To his credit, he’s trying to up his game by studying the moneysphere. Never heard of Naked Capitalism, Zerohedge (feh! on them anyway) or other econoblogs — his learning style is listening to podcasts. I reckon reading is better, but give him credit for making an effort. We talk about Big Picture topics between reps on my leg-lifts.

When physios and the older buffalos in this class are getting excited about an investment that they don’t fully understand, I reckon that’s a sign of mania. It’s penetrated the popular consciousness. I also get Bitcoin spam in my junk e-mail folder and see “Make Money From Bitcoin” come-ons in the “sponsored content” clickbait links on websites that are infested with crapads (unlike here). Wasn’t happening six months ago. The Ponzi is maturing, but I reckon it has a way to run. My fellow nurses and patients in the psych wards haven’t started discussing it yet. (You’d be surprised at how aware of trends some psych patients are, especially if it’s something with a paranoid angle, like distrust of the financial system.) When nutters start ranting about Bitcoins, THEN the phenomenon will be full-on and ready to blow.

I have done the same listening tour. My well-read parents in their seventies, college graduates in their forties, even my sister with a doctorate has never heard of Bitcoin. Now, none reads NC and none has a business degree.

My friend by me teaches college business classes 100+ miles north of Detroit–so, the sticks for sure. His students all know about and agree with Bitcoin. We share another friend, a professional in Chicago, who has bought Bitcoin. But truly, nobody else in these parts knows anything about it.

In my humble opinion, it seems like a youthful, bicoastal phenomenon in the US. Interestingly, other countries are bigger buyers of crypto currency than the US.

Is it fair to assume your physiotherapist is not in flyover country? To be fair, the shoeshine boy was on Wall Street, wasn’t he?

The only intrinsic value one can think of any crypto-currency is the anonymity it offers for transactions. Therefore, meaningful only for some dark businesses and tax evaders alike. Also, the sudden huge movements in the market is also fishy to say the least.

That’s a *feature* not a bug, when you’re talking about currencies. That’s my whole point. There are tens of millions of people in the US directly invested in the value of the US dollar. And a lot of them have guns or worse.

And if you think I, as a 30-something, am not personally invested in the continuing value of my grandmother’s, mother’s and my own and family’s social security, and wouldn’t take to the streets to defend it, you’re living in an upper-middle-class privilege bubble.

I think back to the days of inception of the bitcoin. I remember one party that promoted it heavily, and realized that they were being given free bitcoins to do so. They had people watching them due to their web presence and excitement whether investors, maniacs or stock pickers, what ever they may prefer to call themselves. It was an investment that can’t lose, hence it fed the greed element. Those people wanted to win after losing in 2008-9 and found the sales pitch fascinating. I found it fascinating because I couldn’t make out if it was a scheme or a reality. I knew only that at inception it was a scheme trying to become a reality. That is also a reasonable definition of a scheme that relies upon new blood to keep it alive i.e. Charlie Ponzie, and Bernie Madoff, et al, ad infinitum.
I wondered why I would trust someone selling and promoting what they did not have to buy. There is one great big little problem with BTC that no one wants to consider first among the arguments. Can you take your BTC wallet with you wherever you roam? What if you can’t plug your wallet in? What if the structure you require to use your wallet becomes unstable? BTC seems to rely on instability to promote itself and that could cause it to collapse at the same time. But the one thing that convinced me it has bugs that can be exploited was the acceptance by those most likely to suffer from it, Wall Street and governments. When they got in the game, I got the strange notion the chain was already hacked. The creations of humanity are art, not intrinsic value.

> There is one great big little problem with BTC that no one wants to consider first among the arguments. Can you take your BTC wallet with you wherever you roam?
Yes.

> What if you can’t plug your wallet in?
I’m not sure what this means. Wallets can exist on specialist hardware devices, computers, mobile phones, online or on paper(!).

> What if the structure you require to use your wallet becomes unstable? BTC seems to rely on instability to promote itself and that could cause it to collapse at the same time.
I know some Bitcoiners like to talk about the collapse of fiat, but I don’t think they actually wish for a complete breakdown of society or Armageddon. I know I don’t. Rather they see Bitcoin establishing itself as a bona fide store of value, then medium of exchange, then unit of account, over a period of time, globally. That does not require the levels of instability you point to.

There may be another way that bitcoin has a fundamental not tied to its extremely low use value. That would be the ever escalating cost of mining it, which could at some point simply become prohibitive and really crimp using it. I understand that compared to some other leading alternatives, it really has an inefficient method of mining, with the main reason it has so much more use and total value than competitors is simply a first mover advantage story. But its fundamental inefficiency may yet doom it against competitors. The top two, again, seem to be ripple, with its use between banks, and etherium, with its extra capabililties for writing contracts and so on that bitcoin lacks. It is my understanding that both ripple and etherium have much better mining techs than does bitcoin, although I stand to be corrected if that is not true.

Of course the blockchain idea is useful and has spread to other uses and entities beyond pseudo-currency ones. That will continue, whatever happens to bitcoin or its immediate competitors.

I’m fairly confident that mining or production cost is never a source of fundamental value, for anything. This maybe an issue of semantics, but it’s an essential one. Fundamental value is what something is worth, what it is useful for, after it exists. Production costs influence supply and demand, which will affect the price of something which derives its fundamental value from another source, but that’s not the same thing.

For instance, the value of dog poop is not governed by the cost of the food that went into the dog. No matter whether you fed the dog Wagyu steak or rat meat, the poop will still have negative value, because you’ll have to spend time or money to get rid of it.

On the other hand, Chicken Manure’s price will sometimes be related to its production cost, in the same way that oil prices can be influenced by production costs, but that’s only because the one has fundamental value as fertilizer and the other as fuel. If the price drops below marginal production cost, supply will decrease, but the value of the fertilizer or fuel to the user does not change.

The value of any particular cryptocurrency, if any, will derive from whether it provides a superior medium of exchange compared to existing currencies. It might be a walled-garden medium, such as frequent-flyer miles, or it might be adopted by an industry for commercial exchanges, or by a government. But as with gold coins and the earliest forms of paper money, it’s far more likely that government adoption, if it ever happens, will be of the idea, not the existing implementations.

> I understand that compared to some other leading alternatives, it really has an inefficient method of mining

Mining is ‘inefficient’ (by which I assume you mean computationally very expensive) by design! The whole point of mining is to apply carefully regulated difficulty and expense to adding blocks to the blockchain. Why? Because otherwise it would be trivially easy to recreate blocks and double-spend transactions (i.e. undo transactions that were previously accepted, for your own or somebody else’s benefit). ‘Proof of work’ is essential to the security proposition.

Ethereum (with an ‘e’) currently relies on proof of work but aims to move to a new (as yet unproven) proof of stake scheme. Ripple is simply not comparable. XRP relies on distributed agreement (i.e. it “solves” consensus with trusted parties). At best, it’s the difference between tamper evident and tamper proof.